Stockwatch- CIMA (Malaysia)
Company Name: CEMENT INDUSTRIES OF MALAYSIA BERHAD
Stock Name: CIMA
Date Announced: 25/07/2006
Type: Announcement
Subject: OFFER TO ACQUIRE EQUITY INTEREST IN SUBSIDIARIES OF CIMA
Contents :Further to the last announcement dated 19 June 2006 in respect of the offer from VICAT which lapsed on 1 June 2006, we are pleased to announce that CIMA has received a fresh offer today from VICAT through its local solicitors to acquire equity interest in the subsidiaries of CIMA. The offer has no validity period.The offer is being considered by the Board of CIMA and further announcement will be made in due course.This announcement is dated 25 July 2006.
Dreadful Stocks to Avoid
Below is an article that could be useful to avoid losses :)
Dreadful Stocks to Avoid
By Richard Gibbons July 21, 2006
Warren Buffett's first rule of investing is "Never lose money." To this, he often adds rule No. 2: "Never forget rule No. 1." Of course, following these rules is easier said than done. But Buffett's done pretty well, so it seems unwise to simply dismiss his advice as the semi-coherent ramblings of a man who's read way too many 10-Ks.
I take those rules to heart in my investment strategy. I try to focus my investment dollars on sustainable, undervalued businesses that I can easily understand. Buffett has made more than $40 billion for himself using that strategy, and he's made even more for his partners and shareholders over the years. Do you really need to assume a lot of risk to make more than $40 billion? My answer, and the answer of my colleagues at
Motley Fool Inside Value, is "Heck, no!" If I make only $40 billion, I'll be perfectly satisfied.
People spend a lot of time discussing the companies Buffett buys. But in the spirit of not losing money, it's equally worthwhile to understand the types of businesses that Buffett does not buy, in order to steer clear of potential duds. I see five main categories:
1. Businesses that bet the farmIn some industries, companies occasionally have to make critically important decisions. If the company makes the wrong choice, it will be dealt a crippling blow. This is terrible for a shareholder, because even if the company makes the right decision one month, it might fail to do so the next. There is no "three strikes and you're out" policy. One strike, and it's game over -- your money's gone.
Consider Boeing's conundrum in the superjumbo jet market. Developing a new jet costs billions of dollars, which can be recouped only if the jet proves to be a huge success. Boeing's competition, Airbus, already has more than 150 orders for its A380 superjumbo. But Boeing's research shows that airlines are moving away from a hub-and-spoke model. Thus, Boeing is betting the farm against the superjumbo, opting instead to develop the 787, a smaller, long-range jet that it expects to better address the market's needs. But if Boeing's analysis is incorrect and the market moves toward the superjumbos, it will lose customers. Either way, it's a tough decision, with potentially terrible consequences for Boeing.
2. Businesses dependent on researchIt's quite reasonable to believe that research can be a competitive advantage for certain companies. In fact, one reason Juniper Networks
(Nasdaq: JNPR) has been successful is that it has been able to continually develop new networking hardware. Nevertheless, there is a downside to research. Often, innovative companies are required to do research simply to maintain their competitive positions. And if the research dries up, a company suffers.
For instance, consider the plight of Pfizer
(NYSE: PFE). Like many of the huge pharmaceutical companies, Pfizer had an impressive history of earnings growth because of new drug discoveries. But now Pfizer's struggling. Not only is it facing lawsuits over Celebrex and Bextra, but its labs are laboring to find new drugs to replace the old. And in 2011, its biggest drug, Lipitor, is coming off patent. As a large pharmaceutical, it still has many dominating competitive advantages, but fears about its pipeline have kept investors away from the stock.
Thus, tech firms, pharmaceuticals, and other companies dependent on research constantly have to be wary of their innovation failing. This is in stark contrast to a company such as American Express
(NYSE: AXP), which could develop nothing for a decade and still have a healthy business. While I don't think this is sufficient reason to sell off all your technology or pharmaceutical stocks, I can understand why Buffett tends to avoid such investments.
3. Debt-burdened companiesIn general, Buffett avoids companies with a lot of debt. This makes sense. During the best of times, large amounts of debt mean that cash that could be put toward growing the business or rewarding shareholders is instead servicing the debt. In a crisis, debt greatly limits a company's options and can sometimes lead to bankruptcy.
A more subtle point is that great businesses throw off piles of cash. Great businesses generally don't need to use huge amounts of debt leverage to achieve an acceptable return for shareholders. So if a company needs debt to achieve reasonable returns, it's less likely to be a great business. You can see this with airlines like AMR
(NYSE: AMR) and UAL
(Nasdaq: UAUA). Both have billions of dollars of debt because they needed to take on that debt to build out their routes and pay the bills during hard times. But when the travel cycle hits a trough, the debt is frequently too large to service, and airlines can be forced into bankruptcy, as UAL was recently.
4. Companies with questionable managementManagement has incredible power. If executives want to enrich themselves at the expense of shareholders, either directly or by misrepresenting the company's prospects, individual shareholders have almost no hope of stopping them. I strongly recommend avoiding companies where there's even a hint that management lacks integrity. Some clues to look for here include excessively optimistic press releases, overly generous compensation or options grants, and frequently blaming external circumstances for operational shortcomings. WorldCom and Enron shares may have risen for years, but at the end of the day, shareholders received almost nothing. That's why I think questionable management is the worst flaw a company can have.
5. Companies that require continued capital investmentOver the long term, shareholders make spectacular returns by buying businesses that are able to achieve extraordinary returns on capital. This leads to excess capital that the company can use to repurchase shares, pay dividends to shareholders, or reinvest in further growth. Companies that constantly need to make additional capital investments to keep the business going are the antithesis of this ideal -- the main beneficiaries will be employees, management, suppliers, and government. In other words, everyone except shareholders.
Semiconductor companies, because of the huge expense of building and maintaining chip-fabrication facilities, also suffer from this disadvantage. Chartered Semiconductor Manufacturing
(Nasdaq: CHRT) for example, has found profits and free cash flow hard to come by while spending the majority of its revenue over the past few years on capital expenditures.
The upshot
These characteristics don't necessarily make a company a bad investment. Intuitive Surgical
(Nasdaq: ISRG), for instance, has been a great investment over the past few years, despite ongoing R&D and capital expenditures. But a solid understanding of why these types of companies may be undesirable can help you identify whether a company that looks good on the surface might actually cost you money later.
This article was originally published on Oct. 7, 2005. It has been updated.
Fool contributor
Richard Gibbons has forgotten what rule No. 2 is. He does not have a position in any of the companies mentioned in this article. Pfizer is an Inside Value recommendation. Intuitive Surgical is a Rule Breakers recommendation. The Motley Fool has a
disclosure policy.
Stockwatch- Century Sunshine (8276.HK)
A eco-agricultural play in organic fertilisers
Company website:
http://www.centurysunshine.com.hk/2006 1Q financial report:
http://www.hkgem.com/listedco/listconews/gem/20060512/GLN20060512084.pdf2005 annual report:
http://www.hkgem.com/listedco/listconews/gem/20060322/GLN20060322020.pdf2004 annual report:
http://www.hkgem.com/listedco/listconews/gem/20050331/GLN20050331123.pdfAnnouncements on HKSE:
http://www.hkex.com.hk/listedco/listconews/sehk/ByStockCode.aspYahoo articles:
http://hk.search.yahoo.com/search/news?p=tic%3A8276&s=-ut&ei=BIG5&n=15Based in Fujian province in China, Century Sunshine Ecological Technology Holdings (CS) is engaged in the research and development (R&D), production and sale of organic fertilisers and organic compound fertiliser products that can be used in organic, green and pollution-free
agricultural products. The products are sold under CS’ “Lu Di” brand. CS targets farmers from various provinces, including Fujian and Jiangxi.
Established in 1998, patent of its organic fertiliser processor registered in 2002, listed in HKSE in 2004.
1. All of its products are registered with the Ministry of Agriculture
2. It is the only producer that has gained recognition from the EU
3. Beneficiary of favourable government policies
- rescinding the agricultural tax
- encourages the use of organic fertilisers to lend support to environmental protection and sustainable farming
4. While there are pricing regulations for chemical fertilisers, there are no pricing regulations for organic fertilisers
5. Launch of new business – bio-pesticides
Century Sunshine commenced its bio-pesticides business in the first half of this year. In the first quarter of 2005, it acquired a pesticide producer in Jiangxi province and subsequently expanded its production facility to 1,800 tons of bio-pesticides products per annum. The new facility commenced operation in December 2005. Its pesticides products are currently sold to 12 provinces in China and have become a new source of income of the Group.
6. Acquisition of land for future capacity expansion
In October 2005, Century Sunshine acquired a parcel of land with a site area of 126,700 square meters in Yunxiao, Fujian province. It plan to build on this site a new production plant (the “Yunxiao Plant”) with a total annual capacity of 400,000 tons of organic fertilizers. The Yunxiao Plant is to be completed in two phases: phase I is expected to be completed by the end of 2006 with a capacity of 200,000 tons and phase II is expected to be completed by the end of 2007 with a capacity of another 200,000 tons. The Yuanxiao Plant is strategically located in the South-western Fujian province in order to serve the customers in the southern Fujian and Guangdong province.
7. Share placement
In December 2005, the Company completed a share placement and raised net proceeds of
HK$121 million. All placing shares were subscribed by five independent institutional investors at a price of HK$2.20 per share. The net proceeds will be applied for building the Yunxiao Plant.
This was the company first share placement after the listing in February 2004. The capital expenditure for building the Yunxiao Plant will be fully satisfied by such net proceeds and our internal resources.
PROSPECT (2004 Annual Report)
During the year, the average prices of agricultural products increased sharply across the country. It was also announced that the agricultural tax will be exempted in Fujian province and Jiangxi province starting from 2005. These favorable government policies will provide farmers with further incentives to grow crops. As such, we believe that the future prospects for organic fertilizer industry are promising.
In order to take advantage of the growing market opportunities, we are going to carry out the following plans:–
Firstly, we plan to build a new plant in Jiangxi province with a planned annual capacity of 100,000 tones of organic fertilizers and organic compound fertilizers. Upon completion, our total annual production capacity will increase by 1.8 times to 155,000 tones. The new plant is expected to start operation in May 2005.
Secondly, we plan to commence the production and distribution of our new eucalypt trees fertilizers. The new product will broaden our product lines from agricultural fertilizers to forestry fertilizers. It is expected that the new product will make significant contribution to the Group’s profit next year.
Thirdly, we plan to extend our market coverage to Jiangxi, one of the major agricultural provinces in China. This will significantly enlarge our potential customer base thus contribute to future profit growth.
BUSINESS OUTLOOK (2005 Annual Report)
1. Chinese Government’s favorable agricultural policies
During the year, the Chinese central government announced a series of new policies in favor of the Chinese farmers and the agricultural industry as a whole. Such policies include a 14% increase of spending on the rural world in 2006 and the promotion of the use of organic fertilizers in China's “11th Five-Year Plan”. It is expected that such favorable policies will further stimulate Chinese farmers incentive to use organic fertilizers. As a result, we expect that the market demand for organic fertilizers will continue to grow in the coming years and that the future prospects for our business are promising.
2. Future capacity expansion
Production capacity will remain as a major bottleneck for our development in the foreseeable future. Therefore, we plan to progressively increase our capacity in the next two years. By the end of 2006 and 2007, we plan to increase additional capacity by 200,000 tons in each year. As a result, our total capacity (excluding subcontractors) in 2008 is expected to reach 555,000 tons. It is our objective to maintain our position as a leading producer of organic fertilizers in China.
3. Expansion of sales network
Following the capacity expansion, we also plan to expand our sales network in China. Our primary markets are Fujian and Jiangxi at the present with a secondary network extending to Guangdong, Zhejiang, Anhui, Hubei and Hunan. Our bio-pesticides are already sold to 12 provinces. It is our strategy to progressively increase our penetration into the neighbouring provinces, in particular, Guangdong and Zhejiang in the next two years.
BUSINESS OUTLOOK (2006 1Q financial report)
1. Production increase
We expect that the market demand for organic fertilizers to remain strong for the rest of the year. Our three factories are to contribute their full capacities this year. The Yunxiao plant is currently under construction as scheduled. The first phase of the plant with 200,000 tons capacity is expected to be completed by December 2006.
2. Selling price rise
Starting from 1 May 2006, we raised the selling prices of two types of our products, premium organic fertilizer and organic compound fertilizer, by 12% and 15% respectively. As a result, our sales and profit will be affected positively.
DIFFICULTIES AND CHALLENGES LYING AHEAD (2004 Annual Report)
Although we achieved satisfactory results for the year, we also realized that we are facing certain difficulties and challenges ahead.
1. Current capacity not enough to satisfy the rapidly increasing market demand
During the year, we had fully utilized our production capacity but were still unable to meet the growing demand in Fujian province. The total plantation area of crops in Fujian province is estimated to be about 38 million mu (about 2.5 million hectares). If we assume that all these plantations choose to use organic fertilizers at an annual consumption rate of 150 kilogram per mu, the total consumption will be about 5.7 million tones of organic fertilizers. Although it is unlikely that all the arable land in Fujian province would apply organic fertilizers, our current capacity of 55,000 tones is significantly small as compared to the potential demand. We need to expand our production capacity soon.
2. Shortage of talents in eco-technology and organic fertilizer industries
As eco-technology and organic fertilizers are relatively new in the PRC, there are not as many experienced professionals in these fields as in other industries. With the successful listing of the Group and the rapid development of our business, we urgently need to expand our professional team by both new recruitments and internal training.
Risk factors (UOB Initiation report):
1. Slow acceptance by farmers
2. High gross margin may be unsustainable as new entrants are attracted by the organic food products' high margin
3. Unexpected bad weather and flooding
Source- UOB Kayhian initiation report on 11 July 2006
Highlights of Marc Faber's July 10 2006 GBD report- Patience is also Action
1. We are living through a paradoxical situation in which it isn't the Fed that is dictating its monetary policies but, rather, the asset markets.
If S&P 500 moves up to around 1350, a further Fed fund rate hike in August is likely. Conversely, if the S&P 500 remains in a trading range of between 1240 and 1300, a pause is the most likely scenario. And if the S&P 500 were to decline by another 5% or so, rate cuts would be - if not implemented immediately - certainly discussed among Fed officials and, thereafter, implemented within a short period of time.
Marc Faber believes that the Fed is already a total write-off, given that it no longer sets monetary policies; instead, the asset markets guide the Fed's monetary policies.
2. "Really" tight monetary policies are simply unthinkable in today's highly leveraged and debt-and asset inflation-addicted United States.
3. Consequently, the trend towards higher inflation, higher interest rates, a lower US dollar against precious metals, and stagflation will likely sustained for a very long time.
4. Whereas the value of the US dollar (its purchasing power) will remain in a downtrend, other currencies' loss of purchasing power may be even greater. As a result, the US dollar, while weakening further against precious metals, could appreciate against some currencies whose appreciation in the last few years was driven by interest rate spreads- among them the Turkish Lira, the Brazilian Real, the New Zealand Dollar, and the South African Rand.
5. In the present environment of "relative" global tightening, US assets will outperform foreign assets in the intermediate term (3 to 6 months). International investors have reaped huge gains from foreign markets in the last 3 years and significantly outperformed the returns from US assets.
Therefore, no matter how promising some countries' long-term economic prospects may appear (he is thinking of India, Brazil, and Russia here), profit taking could continue to weight on these countries' stock market.
(Interestingly, there is no mention of China.....)
This would also include Japan, whose stock market more than doubled from its April 2003 low to its recent peak at 17,563 in early April 2006. Following a rebound, a further decline to around 13,000 would not surprise him.
6. Marc believes that the period from May to October would be challenging for financial assets. He continue to believe that it will be difficult for the S&P 500 to break through the overhead resistance between 1290 and 1330 for that index. So the upside would seems to be rather limited and not only for S&P 500 but for foreign markets as well.
For equity-dedicated portfolios, Marc would be positioned in relatively depressed big market capitalisation stocks, such as pharmaceutical shares including Merck (MRK), Schering Plough (SGP), Pfizer (PFE), Bristol-Myers (BMY), and Johnson & Johnson (JNJ); as well as Citigroup (C).
Among developed markets, investments in Canada may offer superior opportunities for currency-adjusted capital gains than in the US.
7. Mar is positive towards Singapore economy and its rock-solid financial condition. Its government, while certainly not perfect, is far more enlightened than those in developed world and in emerging markets. Marc also thinks that Singapore is the world's richest country if we consider the quality of its educational system, splendid infrastructure, modern healthcare facilities, perfect security, the diversity of the economy, and its financial reserves.
8. Recently, the Bank Credit Analyst published 2 intriguing figures.
a. One figure showed how Asian real estate prices had underperformed real estate prices in Anglo-Saxon countries.
b. The other showed how the Singapore stock market had underperformed other emerging markets in the last few years.
While Marc do not consider Singapore shares to be the bargain of one's lifetime, he believes that Singapore shares offer relative value for equity-dedicated funds. Singapore shares in a buying range are as follows:i. Mobile Oneii. Singapore Postiii. Comfort Delgroiv. Singapore Pressv. Singapore Telecomvi. Singapore Telecomvii. SIA Engineeringviii. Singapore Airport Terminal Services (SATS)ix. UOB BankMarc also favour Singapore REITs such as:i. Suntec REITii. MEAG Prime REITiii.Ascendas REITiv. CapitaMall TrustMost of these REITs have yields of around 6% and have significantly underperformed US and Australian REITs over the last 12 months.
9. Aside from Singapore shares, Marc believes that relatively good-value and high-yielding stocks can be found in the Thai, Malaysian, and Taiwanese stock markets.
10. Given that we recently experienced the highest volatility in commodity markets since the early 1980s, and very frequently such high volatility occurs near market peaks, Marc would be careful in assuming that the uptrend in industrial commodities and precious metals will resume in the immediate future.
(Does the recent volatility in regional stock markets suggest market peaks too?)
In the case of gold, Marc would prefer to see a successful retest of the recent lows and ideally
buy gold at between US$480 and US$550.
Stockwatch- CIMA (Malaysia)
From 2005 Annual Report:
Corporate Profile
Cement Industries of Malaysia Berhad (“CIMA Group” or “the Group”) has been involved in the manufacturing and distribution of cement and related activities since 1975. The Group effectively combines people skills and technological capabilities to become the third largest cement manufacturer in Malaysia, enjoying approximately 17% of the country’s cement market share.
The Group also ventures into international markets, such as Singapore, Indonesia and the Middle East. CIMA was listed on the Main Board of the Bursa Malaysia Securities Berhad (formerly known as Malaysia Securities Exchange Berhad) in June 1984. It became a part of one of the largest construction conglomerate in Malaysia when United Engineers (Malaysia) Berhad (“UEM”) acquired a majority stake of 53.9% in 1990. At present, the Group has staff strength of approximately 1,000 employees. Its subsidiaries, associates and a joint venture company are involved in the manufacturing of cement, limestone and shale quarrying, distribution and sale of cement, production and sale of readymixed concrete, investment
holding, and the manufacture and sale of cement bags.
The Group is divided into three main divisions of Manufacturing, Quarrying and Readymixed Concrete, and Trading. Negeri Sembilan Cement Industries Sdn Bhd leads the Manufacturing Division with its cement plants in Bukit Ketri, Perlis and Bahau, Negeri Sembilan. The two plants combined, make up a total clinker production capacity of 2.8 million tonnes per annum and a total cement production capacity of 3.4 million tonnes per annum, comprising Ordinary Portland Cement (“OPC”), Type II OPC and Masonry Cement.
In the Quarrying and Readymixed Concrete Division, Cimaco Quarry Sdn Bhd provides the required limestone for the Manufacturing Division, whilst Unipati Concrete Sdn Bhd manufactures the readymixed concrete for sale in the Peninsular Malaysia. Pemasaran Simen Negara Sdn Bhd as the Trading Division of the Group, co-ordinates customer-oriented services such as the marketing, selling and distribution of the Group’s cement, under the brand names of ‘Blue Lion’ and ‘NS Cement’.
The Group commands a strong market presence with two strategically located plants in the north and south of Peninsular Malaysia. Moreover, its extensively developed distribution networks of marketing offices and packing depots nationwide, further strengthens the Group’s standings.
OUTLOOK
The Malaysian economy will generally remain favourable in
2006. The strong fundamentals, high domestic demand and
broad-based growth will support the forecast expansion at
above 5% in 2006. Given this scenario as well as the
increasingly competitive business outlook, the Board is positive
about CIMA’s prospects in achieving its performance target
in 2006.
The Ninth Malaysia Plan which has been announced recently
brings positive growth prospects for the country’s economy.
CIMA shall position itself to take advantage of this, with a
view of strengthening its market position. CIMA will concentrate
on the development and enhancement of its capabilities in
the cement and cement related activities.
Sector Watch- Malaysian Cement
In feb 2006, I read an research report on the Malaysian cement industry. Bought into 1 of the Malaysian cement company and sold subsequently with some profit when it rose on some M&A news. However, I am still bullish in the Malaysian cement sector as I see the ability and the need of the regional economies in infrastructural spendings.
Just spoken with an friend in the construction industry in Malaysia, he sees stability in cement price in Malaysia. And when ask the risk is in the downside or the upside, he see upside risk in cement price.
Separately, I also read the following: "No new capacity has been built in the last five years. And UOB-Kay Hian's Yee does not expect new capacity in the next five years, citing difficulty in getting government approval, financing and rising replacement cost as strong disincentives."
It is my opinion that with the government-imposed ceiling selling price of 198/MT, it will take a lot of foresight and courage to invest in new capacity.
Summarised below the key points of the February report on Malaysian cement industry:
1. We believe the cement sector is bottoming out as sector dynamics continue to improve. The end of the price war in Jun 05 has resulted in the sector returning to profitability after two quarters of severe losses.
2.
Oligopolistic market. Since the 1997 financial crisis, the number of big cement players has reduced from seven to four who now control 97% of the market. The current cartel has successfully doubled cement prices in the past six months and organised plant shutdowns to maintain better demand-supply balance. Cement prices rebounded 80% after price war ended. The price war, which has characterised the sector for the past five years, climaxed when cement average selling prices dropped by 37% from RM158/tonne to RM100/tonne in 1H05. This resulted in the sector suffering its first loss in five years. Cement prices have since rebounded to RM185/MT and are gradually rising on better supply-demand balance.
3.
9th Malaysia Plan (9MP) may surprise on the upside. The market currently has very low expectations of a construction sector revival fuelled by the 9MP as allocation is expected to be similar or even potentially lower than the 8MP (RM150b-170b). However, newsflow in the construction sector has improved in the past two weeks. The government plans to proceed with the new Johor-Singapore bridge (estimated cost RM1.1b). A second bridge in Penang (estimated cost RM2.6b) or major road infrastructure upgrade is also likely as the Prime Minister has promised Penang, his home state, some goodies in the 9MP.
We think the 9MP may surprise on the upside given the looming UMNO and general elections in 2007 and 2008 respectively. This could be a catalyst for the construction sector which has suffered a downcycle in the past nine years.
5. Some business drivers to watch out for:
a. utilisation rate (Sector capacity utilisation has increasedfrom a low of 60% in 2001 to 72% currently)
b. coal price (coal constitutes about 15% of total all-in cost)
c. electricity tariff (Electricity constitutes only about 14% of total all-in cost, compared to coal’s 15%)
d. transportation cost (expected to rise as the government cuts back on diesel subsidy to reduce the country’s budget deficit)
e. government-imposed ceiling price of RM198/MT
6. Investment strategy:
Bottom of the cycle. The cement sector has fallen by a massive 68% from the peak in 1994. It has turned attractive as: a) earnings have returned to profitability in 3Q05 after severe losses in 1H05, with profits from 4Q05 onwards likely to be stronger as average price is rising, and b) downside risk mitigated by all-time low valuations and high dividend yield (FY06: 4.3% vs regional’s 3.0%). We believe cement companies’ share prices have yet to reflect the strong earnings recovery, which opens up a great buying opportunity. We think the cement
sector is more attractive than the construction sector as the latter suffers from: a) too many players, b) continued losses, and c) rising building material prices globally.
Valuations at all-time low. The cement sector P/BV has fallen from a peak of 3.8x in 1993 to a severely depressed 0.6x currently, a massive 84% plunge. Current valuations match 1998 post-financial crisis level of 0.6x. A recovery to mid-cycle valuation of 0.7x P/BV suggests a 20% upside for the sector.
Attractive compared to regional peers. The Malaysian cement sector currently trades at a 33% discount to regional peer’s FY06 EV/EBITDA (5.8x vs 8.7x). Using EV/tonne, Malaysian cement sector still looks attractive at RM247/MT, a huge 43% discount to regional peers’ RM434/MT (ex-Siam Cement) and 54% below replacement cost of RM539/MT (US$145/MT). Average P/BV and P/CF are also undemanding, at just 0.8x and 8.1x compared to regional’s 2.9x and 13.2x respectively.
Stockwatch- CK Tang, an article on Business Times 6 Jul 2006 $0.485
CK Tang back on expansion path
Group says it's mindful of painful lessons from past expansion failures, writes WONG WEI KONG
Key highlights:
1. SHAREHOLDERS who kept faith with CK Tang, one of Singapore's oldest retailers, were finally rewarded when the company paid its first dividend after 12 long years. And if things go well, they can look forward to more dividends, and perhaps, an improvement in the stock price.
2. Mr Foo: Previously the chief operating officer, the seven-year CK Tang veteran took over from Tang Wee Sung, the second son of the group's founder Tang Choon Keng, as chief executive officer last month After more than a decade of losses, CK Tang has not only turned around but is expanding again. Net profit for the full year ended March 31, 2006 more than tripled to $3.82 million from $1.14 million the year before, while operating profit rose 84 per cent to $7.4 million. Revenue increased 5.9 per cent to $179.7 million. On the back of that performance, CK Tang proposed to pay a final dividend of 0.3 of a cent a share.
3. 'Our existing business, the flagship store, has continued to produce decent operating profits. We have gone into a major re-configuration of our Orchard Road store. All that was a result of a lot of detailed planning and understanding the lifestyle wants of our customers,' Mr Foo told BT in an interview.
4. The revamp saw CK Tang move from being a department store to a 'manager of brands' aimed at a customer segment that is slightly above mass market. The reconfiguration and improved merchandising mix has led to better performance, said Mr Foo. For the past two years, sales productivity - that is, sales per sq ft - at the Orchard Road store have averaged an increase of about 5 per cent per annum, while gross margin dollars psf have averaged increases of 8 per cent.
5. While less eye-catching than the opening of new stores, the company has been strengthening its management to support its growth strategy. Last month, Mr Tang, the second son of the group's founder Tang Choon Keng, relinquished his role as CEO to Mr Foo, previously the company's chief operating officer and a seven-year veteran of the company. New talent at management levels has also been brought in.
6. 'We see retailing just like any other business. You need good structures and good policies. We see this as a time to re-energise so that we can go forward with a better framework. We see the need for us to be fully innovative,' Mr Foo said. 'We are prepared to bring in people from other industries.'
7. With the company resuming dividend payments and ready to expand again, things appear to be looking better than they have for a long time for CK Tang shareholders, who have largely been a resilient lot. In response to suggestions by some groups of investors, Mr Tang offered to privatise the company at 42 cents per share in 2003. The proposal was turned down in 2004 when it was time for shareholders to vote.
8. Asked if the market is still undervaluing CK Tang shares, Mr Foo noted that net tangible assets (NTA) per share is over 50 cents. 'If you look at that in terms of market rating, it's not even up to NTA.'
Stephen Roach, Morgan Stanley- Venting global tensions
Venting global tensions
By Stephen Roach 11:13AM (05-07-2006)
I continue to believe that the global economy is now in better shape than financial markets. The stewards of globalisation have finally woken up to theperils of ever-mounting global imbalances — the major macro issue that has concerned me for nearly four years. But the policy requirements of rebalancing are not without risks — especially since they entail a withdrawal of excess liquidity. In my view, the risk aversion trade that began in early May should be seen as a venting of the tension between global rebalancing and a potential shift in the liquidity cycle.
Financial markets may not have seen the end of this adjustment. The linkage between liquidity-driven asset bubbles and global imbalances is at the heart of this venting. Aided and abetted by its bubble-prone central bank, the US has taken the lead in driving this insidious process. By substituting asset-based savings for traditional income-based savings, America has pushed its domestic savings rate down to unprecedentedly low levels; in the second half of 2005, the net national savings rate was essentially “zero”. Lacking in domestic saving, the US then imports record surplus savings from abroad — which, of course, requires it to run massive current account and trade deficits in order to attract the foreign capital. America’s current account deficit, which soared to a record US$791 billion in 2005, was, by far, the largest imbalance in an unbalanced global economy, absorbing about 70% of all the surplus savings in the world last year. It is a direct outgrowth of bubble-driven dissaving that has taken the personal savings rate into negative territory for the first time since 1933.
April was a critical turning point on the global rebalancing watch. After years of denial, the stewards of globalisation, namely the G-7 finance ministers and the International Monetary Fund (IMF), finally sounded the alarm over the threat of mounting imbalances. The rebalancing fix that was endorsed has three key ingredients — the adoption of a multilateral global architecture of surveillance and consultation, general agreement on dollar depreciation and a global tightening of monetary policies.
This latter piece of the rebalancing fix is key to the liquidity withdrawal that now appears to be underway in world financial markets. One by one, all of the world’s major central banks — in the US, Europe, Japan and China — have moved to the tightening side of the monetary policy equation since late April. While there is still considerable disagreement over how far this global tightening may yet run, there can be little doubt over the implications of what has transpired so far. As measured either by price (real interest rates) or quantity (the excess of money over nominal gross domestic product) the global liquidity cycle has now shifted decisively to the downside for the first time since 2000. For liquidity-driven financial markets and the steady stream of asset bubbles they have spawned in recent years, this represents a major about-face.
In response to this turn in the global liquidity cycle, the adjustments in world financial markets have been painful but orderly. Developed world equity markets have stayed within the 10% correction band that market historians have long judged to be the norm of most mature bull markets. The biggest moves have occurred in the assets that went furthest to excess, namely emerging market equities and commodities. From their early May highs, corrections in these markets have ranged in the 20% to 30% zone — significant by any standards but all the more so in the light of the extraordinary run-ups of the past several years.
Traditionally among the riskiest of assets, emerging markets and commodities had become priced for a veritable absence of risk. I have argued that while there are, indeed, constructive fundamentals in both areas, there are good reasons for investors to remain engaged in an active two-way debate on the macro outcome for risky assets. To the extent that was increasingly less the case, the risks of corrections were high and rising in both commodities and emerging markets. In fact, that’s pretty much the way it has since played out.
I don’t think it’s a coincidence that the near parabolic increases in commodity prices in late March and April occurred just when an already vigorous Chinese economy surprised to the upside. Investors and speculators quickly became convinced that China would do little to arrest its “commodity-heavy” growth model that had drawn disproportionate support from fixed investment and exports for the past 27 years. This ignored altogether the possibility that China might tighten its policies to contain another wave of overheating and embark on a major structural transformation of its economy that would see growth shifting away from its commodity-intensive investment and export sectors to more of a commodity-efficient consumer-led outcome. And yet there is now good reason to believe that both such shifts are now underway.
The same can be said for the emerging market debate. As seen from the standpoint of the problems that created the last crisis in the developing world — the wrenching adjustments of 1997/98 — today’s fundamentals look nothing short of superb. The outperformance of emerging market equities over the past three years and the extraordinary compression of debt spreads in the developing world suggest investors had become comfortable with the notion that the days of crisis were all but over for this traditionally risky asset class.
Here, as well, I have argued that the debate needs to be more even-handed. After all, the proverbial “next” crisis never looks like the last one. While the developing world has, indeed, reduced its external financial vulnerability dramatically over the past nine years, it has done little to reduce the external vulnerability of its real economies. Lacking in support from internal private consumption, a faltering of the long over-extended American consumer could well do serious damage to these still export-led economies. We debate endlessly the fate of the American consumer. But with the US property cycle now turning, it seems foolish to ignore the possibility that there will be a significant consolidation in US consumer demand that would have major implications for externally dependent developing economies such as China, Mexico and even Brazil. With liquidity withdrawal now hitting a critical threshold, it seems equally reasonable to price emerging market securities for a more reasonable assessment of such a possibility. And that’s exactly what appears to have happened (see last week’s article “Putting the risk back into emerging markets”).
The key question, of course, is whether the risk aversion trade of the past several weeks has gone far enough in pricing in a more realistic assessment of risks. There are three reason I believe the answer is “no”. First of all, from the standpoint of the recent history of risk-reduction adjustments, the current shift is on the short end of historical experience. This is evident in scanning the record of our proprietary “global risk demand indicator (GDRI)”. Since 1997, major downside moves in the GDRI have had an average duration of about 15 weeks; as such, the six-week move in the current cycle is not even halfway there.
Second, I believe that the Chinese authorities will have to up the ante on their recent tightening moves in order to slow a white-hot investment sector; so far, this year’s approach has been a carbon copy of the efforts deployed in 2004 — incremental adjustments in lending rates, a modest increase in reserve requirements and administrative controls on selected overheated industries. With the Chinese economy overheated for the second time in two years, it is clear that if the incremental approach didn’t work back then, it stands even less chance of working today. I agree with my colleague Andy Xie that more Chinese tightening now lies ahead in the not-so-distant future.
Third, I think the Federal Reserve will continue to surprise the markets with more rather than less monetary tightening; its chairman Ben Bernanke has both a credibility problem and the foil of an inflation scare to justify such a policy bias. And a now-softening housing market will be hit in response, as will the asset-dependent American consumer. If the US consumer finally capitulates — a possibility the consensus has all but dismissed out of hand — commodity markets and the developing world will be the first to feel it.
The good news is that none of this speaks of a terribly disruptive endgame for global rebalancing. Had global policymakers ignored the problem, a dollar crisis at some point in the not-so-distant future was a distinct possibility, in my view. But now the combination of architectural reform, currency adjustments and monetary tightening points towards a more orderly, and hopefully benign strain of global rebalancing. However, it is important to stress that such orderly adjustments in the real economy are no guarantee for orderly adjustments in liquidity-driven markets, especially those risky assets that have gone to excess. The risk aversion trade is a clear reminder of that possibility. In the end, global rebalancing can’t occur without a shift in the global liquidity cycle — a withdrawal of the high-octane fuel that has given rise to a multitude of asset bubbles since the late 1990s. If central banks have the wisdom and courage to stay this course, asset-driven saving imbalances will finally be addressed. Investors have long presumed this day of reckoning would be postponed indefinitely. They had become hooked on the now infamous “Greenspan put” — the seemingly perpetual willingness of the world’s dominant central bank to bail out disorderly markets. Yet this approach was ultimately destined to fail — it was a breeding ground for the systemic risks of ever-mounting global imbalances and a moral hazard that could only end in tears.
In my view, that’s what this debate is actually all about — whether the world’s major central banks are finally about to close the book on the Greenspan era. The tension between global rebalancing and the liquidity cycle could well be key to rendering this verdict for world financial markets.
Stephen Roach is chief economist at Morgan Stanley Dean Witter based in New York
BCA Research- How To Play The Commodity Cycle
BCA Research- How To Play The Commodity Cycle
July 04, 2006
We advise investors to position for outperformance of oil versus base metals prices.Our view is that the overall commodity complex is in a secular bull market. However, with central banks tightening and global growth in a cooling phase, cyclical commodity demand is easing.
Against this backdrop, the crude oil price is likely to outperform base metals. Chinese trends buttress the case. Chinese imports of base metals have already started to cool, and could moderate further as the authorities target a slowdown in select capital spending industries and real estate. Meanwhile, Chinese oil imports are still in an uptrend and should stay strong. Gasoline demand is a key driver of energy imports, and we expect sales to remain firm as the Chinese authorities encourage consumer spending.
Finally, technical indicators highlight that there is more froth in the base metals market compared to crude oil.
